A link between current accounts and mortgages may prove to be a winning formula for challenger banks to gain traction on their major high-street rivals.
Mortgage customers at Barclays are to lose a considerable advantage when Woolwich, the bank’s mortgage arm, severs the link between mortgage repayments and its current account overdraft facility.
Those with special mortgage-aligned current accounts at the bank have been able to extend their overdraft limit as the mortgage was repaid, allowing them to draw upon thousands of pounds at rock-bottom rates below 5% - cheaper than standard personal loan rates.
But Barclays has now decided to withdraw the offer, citing a lack of popularity for the overdraft uptake while the effects of inflation and pay freezes continue to bite.
Though overdraft limits will no longer rise in tandem and will be slashed in some cases, customers will not be required to repay their debts immediately.
Challengers
Therein lies an opportunity for so-called "challengers" such as the Co-operative Bank and Britannia, whose latest best-buy mortgage range is made yet more attractive through the group’s current accounts.
Impressive current account linked mortgages, with no set-up fee. Source: Co-operative Bank.
The group’s latest mortgage rates includes impressive 5-year fixed-rate deals, with a 75% LTV mortgage available at 3.19%, and an 85% LTV loan available at 3.69% – both until June 2018.
And even better: new or existing current account customers with the bank will face no arrangement fee – a saving of £1,149 – provided they have completed the Co-operative Bank switching service or paid in a salary for two consecutive months.
Research published recently confirmed that while the Funding for Lending Scheme had continued to drive down mortgage rates, the average arrangement fee has reached a 25-year high (read more).
And with new rules that will improve the process of switching bank accounts due to come into effect later this year, such offers will become even easier for customers to exploit in the future.
Keith McDonald
Which4U Editor
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